Zale Will Close One-Fifth of Its 2,000 U.S. Stores : Retailing: The jewelry chain was hoping for strong Christmas sales. It didn’t get them.

Blaming disappointing Christmas sales and the lingering recession, Zale Corp., the nation’s largest retail jewelry chain, said Monday that it will close about 400 of its 2,000 U.S. outlets and restructure its huge debt load.

Zale, whose operations have been troubled for two years, also said it will stop making payments on its nearly $1.2 billion in debt until its financial restructuring is complete.

Executives of Zale, which is jointly owned by Peoples Jewellers in Toronto and a Swiss conglomerate, said the actions are designed to prevent a bankruptcy reorganization that could cripple the company’s efforts to remain a going concern.

“It is in everyone’s interest to keep Zales open,� a company spokeswoman said of efforts to negotiate concessions from creditors. “But I’m not going to say everyone is happy.�

Zale is the first national retailer to restructure its operations as a result of the disappointing holiday selling season. It said its sales were 10% to 15% below those of a year ago, largely because of the continuing poor economy.

“There are only a very few people who really need jewelry,� said Robert Kahn, a retail analyst in the San Francisco Bay Area.

The company, which operates Zale Jewelers, Gordon’s, Slavick’s, Bailey, Banks & Biddle, Corrigan’s and a host of other retail jewelers, said it did not know how many of its 155 outlets in California will be affected or how many of its 12,500 employees nationwide will lose their jobs.

Executives said that Zale, which operates multiple, competing stores in most regional and local shopping malls, hopes to combine some mall outlets. “We do not expect to exit any mall entirely,� one executive said.

Although its holiday sales were particularly disappointing, analysts said Zale has been in financial trouble since its purchase of Gordon Jewelry in 1989. The acquisition forced the company to take on a huge debt just as the recession was about to hit.

In the six months that ended Sept. 28, Zale lost $105.6 million, about three times more than in the prior year, while sales were $524 million, about 12% below those of the year before.

Executives said Zale will not make a $52-million payment on bond interest due Jan. 2. Originally due Dec. 2, the payment was delayed until January pending the outcome of the holiday selling season.

“We are presenting Zale’s creditors with realistic and doable plans which are necessary to Zale’s survival,� Chairman Irving Gerstein said in a statement.

However, some analysts said Zale could be headed toward bankruptcy. “Bankruptcy is clearly an option,� said a high-yield bond analyst who asked not to be identified. “If they don’t file voluntary bankruptcy, creditors will force them into Chapter 11,� he said, referring to the section of federal bankruptcy law that allows companies protection from creditors while they reorganize.

Reflecting the missed interest payment, Standard & Poor’s has placed $850 million in Zale debt at a D level. Zale junk bonds were unchanged. Traders said the news was already reflected in the price of the 11% bonds due 1992, which were unchanged at 32 cents on the dollar.